30 November 2017

5 Things You Should Know about the Payment Ecosystem

See all blog posts

Fintech insiders oftentimes erroneously assume that consumers, let alone merchants, know much more about the payment ecosystem than they actually do. This might lead to disturbing misunderstandings, make companies miss business opportunities, consumers get a headache and vendors fritter away their marketing budgets. It’s quite a paradox as online payments should and can support both business and consumers by making e-shopping easier, more convenient, and profitable. Indeed, payment value chain might, at first glance, seem a bit complicated and the omnipresent jargon definitely does not help to efface this impression. However, once you get a solid grasp of the matter, you soon realize how the right choice of tools and providers can bring you a handful of benefits.


As this is my very first entry here, I am going to start from the basics – the 5 must-know things about the payment ecosystem. The goal is to make it as clear and understandable as possible. If you are an online merchant or work for one, I want to help you understand the importance of certain payment features for your commercial success. If you are a consumer, I hope it will make you more aware and – as a result – safer and more comfortable while shopping online.

So, let’s hit the road!

1. Payment methods available in the ecosystem: distinguish must-haves from nice-to-haves

Describing all the payment methods available in the world would be hard, time-consuming and… not really useful. In the fintech era, each local market has at least one “alternative” payment method. “Alternative” to what? Below are described the 4 common types.

Credit/debit cards and card-based methods

Credit/debit card is the most popular online payment method in the world, preferred by 42%/28% of consumers. This stems from its popularity in the non-digital world. Credit cards are connected to credit accounts while debit cards with regular bank accounts.

Using a credit/debit card to carry out online transactions usually requires providing its number and other details in checkout payment forms on merchants’ websites or in their mobile apps. Typing a 16-digit number each time one wants to pay might be quite annoying and thus harmful for conversion. Therefore, more and more companies offer Card on File/One-click payments (i.e. Straal) and digital card-based wallets (i.e. MasterPass, Visa Checkout, ApplePay).

Both types by principal allow the cardholder to provide their payment details just once and securely save them for future use. Accepting cards is definitely a must for any online merchant these days.

Bank-transfer-based methods

Traditional bank transfers are executed within special inter-bank systems, be those local (e.g. iDeal), regional (e.g. SEPA) or global (e.g. SWIFT). Bank transfers often happen to be expensive and slow (especially when interregional).

In order to facilitate the payment procedure for consumers and to allow merchants to receive real-time transaction confirmation, in some countries payment service providers (PSPs) offer, so called, pay-by-links.

Pay-by-link is as simple as convenient. It involves a PSP having accounts in all popular banks operating in a given geography. The payer transfers the money to the PSP’s account in their bank, so the transfer is internal (conducted within the bank’s infrastructure) and instant. In effect, the PSP can provide the payee with an immediate transaction confirmation. The PSP then transfers the appropriate amount of money to the payee’s account.

When it comes to recurring bank transfers, though these are not instant, the payment process can be fully automated through the use of the Direct Debit mechanism – a model in which the payer entitles the payee to charge their account an agreed number of times.

As Direct Debit is a pull-based method, it’s the payee who initiates the transaction.

Not literally, of course.

Their bank does so on the basis of the payer’s permission. Direct Debit is a must on some markets – especially in the Eurozone, where SEPA Direct Debit is a popular consumer bill payment method. Pay-by-links, in turn, are a must-have for merchants targeting Poland – one of the largest EU-members – where most e-shoppers choose this method for their one-off transactions.

E-money transfers

This payment method requires preloading money to a special e-wallet (do not confuse with card-based e-wallets). The payment clears entirely in a closed-loop infrastructure and is instant. Unfortunately, it requires both: payer and payee to use the same transfer system, say, PayPal or Revolut. This payment method is usually more expensive than cards.

Accepting e-money transfers is a good option for cross-border merchants targeting specific groups of consumers who require instant fulfillment of their orders (digital goods!) and are used to topping-up their e-wallets instead of paying directly by card or via a bank transfer.

E-money transfers became popular in cross-border e-commerce due to limited operational capabilities of cards issued in the early 2000s. Today, however, most credit/debit cards can be used online without any restrictions. In other words, in most verticals e-money transfer is a nice-to-have payment method, not to be offered instead but besides card payments.


I’m sure you have heard about Bitcoin. But have you ever heard of Ethereum, Zcash, Dash, Ripple or Monero? Probably not. Cryptocurrencies are often described as the game-changing economic phenomenon. They make a complete new monetary system, which is global and independent of central banks (watch “Banking on Bitcoin” documentary, read Chris Skinner’s blog).

The units of cryptocurrencies (or sometimes just tiny pieces of such units) are stored in cryptocurrency wallets (just like traditional coins) and their value is regulated only by supply and demand. All that one needs to accept cryptocurrencies or pay in a cryptocurrency is a special wallet app to store it.

Unfortunately, cryptocurrencies are prone to fluctuation, “invisible” for most national regulators, and thus quite risky for business. Unless you operate in a kind of business targeting communities of cryptocurrencies’ enthusiasts, accepting this payment method probably won’t bring you many benefits.

As you can see, the right choice of payment methods is really important.

While accepting credit/debit cards is a must – as those are used by people all around the world – you should also take into account the needs of your local customers and the specifics of your business model.

If you run a subscription-based business, for instance, credit/debit cards (Card on File) and (if in Europe) SEPA Direct Debit should suffice your needs.

2. Parties involved in the payment value chain: know who is who and what their job is

As credit/debit cards are the most popular payment methods among consumers, and at the very same time the payment ecosystem they belong to is the most complex one, from now on, I’m going to focus on the card payment process.

Basically, there are four parties involved in each card transactions that customers carry out using their cards online. These are:

  • Payment Gateway – the entity responsible for enabling accepting payments on the website or via an app. It usually offers several payment methods.
  • Acquirer (or Acquiring Bank) – the entity responsible for processing the transaction. Acquirer exchanges information about the payer and the transaction with the card scheme to which the card used to carry out the payment belongs.
  • Card Scheme (Card Organization) – it gathers card issuers and acquirers, and is responsible for executing, managing and policing everything transaction-related concerning cards issued under its brand. In practice, it’s a proxy between the acquirer and the issuer.
  • Issuer (or Issuing Bank) –a bank that has issued the payer’s card under the brand of a card scheme.


3. Card transaction lifecycle: know what happens between clicking a “Pay” button and actual payment settlement

So, this is a regular online card transaction.

A customer proceeds to a checkout page. They type in their 16-digit card number, its expiration date, cardholder’s name and the security code (CSC). The entity that they are interacting with right now is a Payment Gateway. The checkout page is either provided by the gateway services provider or, at least the fields are encrypted by one.

There are 3 key transaction statuses that might help you understand where the money actually is at different stages of the payment process.

  • Authorized – Once the payer provides their card details, the gateway sends those over to a PSP. The PSP communicates with a card scheme and the card scheme checks with the issuer if the card is valid and if there is enough money on the account. If the bank confirms that everything is fine, the transaction is given an Authorized status which puts a hold on the funds but does not remove money from the payer’s account.
  • Captured – this status is given when the money is removed from the payer’s account, being processed by a PSP and a card scheme.
  • Settled – the transaction is settled when the money hits the merchant account in the PSP’s system to be soon transferred to the payee’s bank account.

4. Currencies matter: remember you don't need an account in Kyrgyzstanian Som to sell to customers from Kyrgyzstan

While talking about currencies in online payments, as seen from a merchant’s perspective, there are two important terms: transaction currency and settlement currency.

Transaction currency is the one displayed in an e-store/app. It means that when the displayed price is, say, EUR 100, no matter the currency of the payer’s card or account, they will be charged EUR 100. The FX rate and fees charged will be up to the card scheme and the issuing bank.

Settlement currency is the one in which the money from online sales is wired to the merchant bank account. If the settlement and transaction currencies are different, the FX rate and charges are in most cases decided by the acquirer.

Simply put, as a merchant you can allow customers to pay in any currency (transaction currency), but the money will be wired to your account in one of the settlement currencies offered by your PSP.

5. Payment fraud: bread and butter of the payment ecosystem that might be prevented

Fraud is an immanent part of everything money-related. Sad but true.

It affects merchants of any size and vertical. If your company hasn’t experienced it yet, you’ve been either extremely lucky or haven’t been around long enough.

While talking about fraud in the context of the payment ecosystem, you should, first of all, understand that it’s not a matter of “if” but “when” someone will try to extort your and your customers’ money.

To cut a long story short, as for online card payments plastic cards are not necessary (all one needs are card details), criminals buy breached card databases on the black market and use them to carry out transactions in online stores. They usually target digital goods merchants as they consider such businesses as sitting ducks. Digital goods are delivered instantly and are easy to resell.

Consumers are relatively well protected against fraud by car schemes. Once a legitimate cardholder realizes that their card has been illegitimately charged, they can always contact their bank and claim chargeback – a refund. For the merchant who had accepted a fraudulent transaction it means that they have to return the money.

In fact, they lose both – extorted goods and earned funds. You can learn more about payment fraud by following the blog run by our strategic partner – Nethone.

Fortunately, there are some really smart tools to protect merchants against fraud. Top-class anti-fraud solutions leverage Artificial Intelligence to predict fraud attempts before they even take place and issue real-time legitimacy assessment recommendations for merchants so they can drop a transaction instead of eating a humble pie when receiving the chargeback report.

Quality Payment Gateways offer fraud prevention as a part of the service. To use the must-have vs. nice-to-have dichotomy from the first part of this article – an effective anti-fraud solution on board is a must for online merchants regardless of their transaction volumes, vertical or anything else.

I hope that this article has given you a grasp of the payment ecosystem. Should you have any questions, please don’t hesitate to contact me through our press office. If you want to learn more about the broad portfolio of payment features offered by Straal, please get in touch with our team.

Michał Jędraszak

Chief Executive Officer

Michał is an experienced executive who combines his deep technical background with outstanding business savviness. Prior to joining Straal, he had developed his managerial and analytical skills at a top tier consulting firm - The Boston Consulting Group - where he specialised in strategic advisory for the financial services sector.

At Straal, Michał is responsible for creating and operationalizing the company’s go-to-market strategy, coordination of key business development projects and building fruitful relationships with all stakeholders.

He holds a degree in Mechanical Engineering at Imperial College London.

You might also like...
TOP 5 FinTech Podcasts Worth Tuning In To
7 August 2020

Podcasts are considered to be one of the most impactful media of the digital industry. As of July 2020, there were over 850 000 active podcasts in more than 100 languages (!). It’s impossible to try out every single one, that is why we’ve curated the top 5 fintech-related podcasts with a solid “recommended by Straal” label, including FinTech legend's podcast Brett King's Breaking Banks, 11:FS experts and much more.

Read more
Merchants to follow #2: Cateringoo. A simply delicious business idea
31 July 2020

Get the inside look at the catering industry with our second 'Merchants to follow episode' preseting Cateringoo - a simply delicious business catering brand. Discover, how has the pandemic affected the online on-demand food delivery services market and what did the Cateringoo team do when, due to the lockdown, the number of orders almost dropped to zero?

Read more
Merchants to follow #1: Piesotto. Polish Pioneers of Pet Food Subscriptions
27 May 2020

Learn how Piesotto - a company founded by some true dog lovers out of genuine care for their four-footed “kids” - has become a leading subscription-based pet food supplier in Poland and one of the cutest brands we have ever seen.

Read more
Lexical functional programming — jargon and naming convention
18 May 2020

"Everything flows", said Heraclitus. The reactive paradigm followers like to say that "everything is a stream". The phrase attributed to Heraclitus is valid for both functional and reactive paradigms. In the first one, we have pipelines, in the second one - streams. That testifies to the significant similarity between these paradigms and shows that reactive programming (but more FRP) is, in fact, an asynchronous implementation of a functional flow.

Read more
C2B Bank Accounts. Filling the Missing Link to the Open Banking Revolution
29 April 2020

The Open Banking Revolution is happening right now. When it comes to online payments, initiating transactions via banking APIs is undoubtedly a gamechanger for the whole ecosystem. But access to tech-savvy corporate banking is limited. Fortunately, challenger banks come to the rescue. Here is what you need to know.

Read more
Ecommerce Management Issues Most Entrepreneurs Forget About: Part II
20 April 2020

In my previous entry, I listed several strategic ecommerce issues omitted by most mid-sized businesses when launching online sales. You already know that most of the starting-point mistakes result from treating an online shop just like another physical store. Here goes the second part where you’ll find even more topics to tick on your strategic to-do list.

Read more
Ecommerce Management Issues Most Entrepreneurs Forget About: Part I
6 April 2020

Ever more companies develop online sales channels, also in traditionally offline industries. Big players apply advanced ecommerce management strategies, which increase the chances of e-success, but smaller entities tend to neglect the strategic part. In this entry, I explain why it’s a mistake and what strategic issues to mind in the context of ecommerce management.

Read more
Choosing Payment System for MaaS App: What to Remember
3 March 2020

The MaaS market is one of the most prominent beneficiaries of the development of digital economy. MaaS apps have not only changed the way people commute but also how they pay for it. Increasingly often, payments affect the competitiveness of MaaS companies. What makes payment solutions so important for the MaaS industry, and what to mind while choosing a payment platform for a mobility system?

Read more
In Search of an International Payment Gateway
6 February 2020

The decision to start selling internationally is a big step for every company. There’s much more strategic planning involved in the process than it may seem at first glance. One of the technical challenges that online merchants face is the choice of an international payment gateway. How to pick the right one? What features matter most when selling internationally? I’ve listed them for you.

Read more
5 Subscription Business Trends to Watch in 2020
8 January 2020

2019 was another year of massive migrations to the subscription-based business model. The subscription market has grown substantially, taking over nearly all product and service categories one can think of. Nonetheless, it has not saturated yet, and every subscription business owner should keep track of the tendencies shaping consumer habits. What to expect in 2020? See our list of major trends!

Read more
5 Vendor Lock-In Strategies for Your Online Business
18 December 2019

Why do you keep using Android despite its common errors? Or not change your bank although its mobile app drives you crazy? The answer is simple: you’ve been locked-in. If you want to retain your customers with the same effectiveness, take a look at our 5 vendor lock-in strategies crafted for online businesses and take advantage of the lock-in effect and switching costs management!

Read more
How (and Why) Subscription Model Works
27 November 2019

You may have heard about the ongoing subscription boom. Every month, more and more subscription-based companies enter the market. Some of them change the rules of the game while other disappear in no time. Go through this entry to learn how to join the former: embrace the subscription business model with all of its pros and cons, and translate this knowledge into profitable decisions!

Read more
KYC: What Does it Mean in Online Payments?
5 November 2019

Once you have gone through dozens of websites explaining how to open an e-store, terms such as KYC or merchant onboarding may ring a bell with you. You will deal with them before jump-starting your online business, so understanding what they mean in advance is going to save you much time. What is KYC in the context of online payments and how does it relate to the merchant onboarding procedure?

Read more
Prepaid vs. Postpaid: Models Comparison
10 October 2019

Prepaid or postpaid: that is the question. Which payment model should you choose for your business to simplify user experience and boost the company’s revenue? Should your customers add money to an e-wallet and be limited by the amount paid upfront or be charged after every single use of your service? In this blog entry, I compare both approaches using the Mobility-as-a-Service industry as an example.

Read more
How to Prepare Your Website for Online Payments
18 September 2019

Online payments are a must-have in the e-commerce world. Period. The times when you gave the clients your bank account number are far behind us. Once you find your perfect-match payment service provider, you should prepare your website/application for accepting online payments. Why is it so important and what to keep in mind while getting ready?

Read more
What is One-Click Payment and How to Use it Smartly
26 August 2019

Reducing your online checkout process to a single click is tempting, isn’t it? In the face of phenomena such as the *mobile first* approach, demand for instant gratification among young generations of consumers, and conversions taking a matter of milliseconds, one-click payment might seem to be the Holy Grail of modern online commerce.

Read more
What is Subscription Management Software and Why You Need It
5 August 2019

Let’s face it: the subscription-based model provides you with loads of valuable customer data but, unless you hire a full-time data analyst, it’s impossible to make full use of them. Moreover, managing subscription plans of every single subscriber manually is a real nightmare. That’s why subscription management software has been created. What is it and how to make the most of it?

Read more
Optimizing Card Payments: Smart Retry
19 July 2019

In the face of Subscription Economy, offering your merchandise in the form of a subscription-based service may seem tempting. Before you pivot, however, it is worth getting familiar with technology designed to make recurring payments more effective. Here comes Smart Retry aimed at increasing card authorization rate. How does it work and why should you implement it?

Read more
What to Look for in a Payment Gateway? Part II
19 June 2019

In my previous entry, I have proposed some basic questions an online merchant should ask before selecting a payment gateway. If you run a subscription-based business, you should get acquainted with several extra questions specific to your business model. A subscription-friendly payment gateway is a way to gain higher control over your business.

Read more
What to Look for in a Payment Gateway? Part I
10 June 2019

If you’re reading this, you’re probably searching for the best tool to collect payments from your customers and need to understand the differences between diverse solutions available on the market. Here’s a brief guide to selecting the right payment gateway for your online business.

Read more
Subscription Metrics to Track and Optimize
9 May 2019

Customer retention is paramount for companies operating in the subscription-based model. One should learn how to measure it and make the most of the statistics at hand. What subscription metrics to track? And how to convert them into actionable insights?

Read more
Predicting Your Subscriber’s Behavior
25 April 2019

Despite the uniqueness of every customer, the purchasing process they carry out doesn’t vary so much from one to another: they follow specific patterns. The marketing concept of customer lifecycle can help you improve your commercial effectiveness. Learn how to make the most of your subscribers' behavior analysis.

Read more
New Chargeback Thresholds – Don’t Panic. Get Ready.
15 April 2019

As of October 1st, 2019, Visa, the world’s largest card organisation, is updating its fraud and chargeback monitoring policy. Will it affect you? If you accept cards online – it certainly will. Should you be concerned? Not necessarily, if you have a well-thought risk management strategy. If, however, you do not yet have any fraud prevention mechanisms on board, you better hurry up in getting some.

Read more
Customer Transaction Costs and How to Cut Them
28 March 2019

Selling is all about addressing your customers’ needs. Offline or online, you seek to get to know your clients and offer them what they’re looking for. However, it’s a human thing that we like when things go quickly and effortlessly. On the internet, we can shop the way we like: saving our time and effort. But is it enough to let your customers buy online? Can you still make their shopping experience less absorbing?

Read more
6 Subscription Business Trends for 2019
30 January 2019

2018 was without a doubt prosperous for subscription businesses. The model has matured, evolved and boldly developed in a number of new industries and markets. Here’s a list of 6 trends that will have the greatest impact on companies operating in the subscription model in 2019: trends one cannot afford to overlook if they aim high on this promising yet ever more competitive market.

Read more
Anything-as-a-Service: the Future of Distribution
16 January 2019

Anything-as-a-Service (or XaaS) is a product distribution model, where companies shift from selling products to providing their value proposition as a service. Since XaaS can, quite literally, be anything, it isn’t hard to get lost in the jumble of buzzwords, jargon and concepts. This brief article will help you get an in-depth understanding of the new, service-based economy.

Read more
4 Tips to Win the Holiday Shopping Season
22 November 2018

Whilst Black Friday and Cyber Monday, or “Black Friday Weekend and Cyber Week” according to some experts, do not mean as much as, say, 2-3 years ago, the pre-x-mas shopping spree is still among the key determinants of the thickness of your top line. Here’s how to - in the realm of intangible merchandise - make the most of the daddy of all holiday sales.

Read more
3 Tips to Grow Your Online Business
15 October 2018

Simplicity of User Experience, efficient billing model and a well-thought risk management strategy. These are the keys to unlock your business potential on the ever more competitive market of digital services, as uncovered by e-commerce professionals at the very first edition of Warsaw Ecommerce Tech Sessions (WETS) – a new series of meetups powered by Straal and Business Link.

Read more
Your Business in the Face of Fraud
17 July 2018

Have you fallen victim to fraud? If the answer is "yes", I assume you have learnt your lesson and already thoroughly inspected what went wrong. The “no” answer does not exist in the case of fraud. It’s only “not yet”. Be my guest and let me invite you to explore the dark side of ecommerce.

Read more
Is the Freemium Strategy Right for Your Startup?
20 May 2018

Look at you, a fledgling entrepreneur at the threshold of international success. I bet it feels fantastic to see your idea come to life. So now that you’re inevitably positioned for success, give your product away for free - that's how the freemium model works. But is it really that simple?

Read more
When One Second Costs $2.5 Million
17 April 2018

Your customers won’t wait or engage in cumbersome processes to get your products and - if your competitors are able to provide the service faster – why would they? Straal presents the mathematics of instant e-commerce. Lean on these statistics to put your business in the fast lane!

Read more
The Essentials of Subscriber Experience
28 February 2018

In the times of flourishing sharing economy, we’re renting, sharing and getting access to everything we need. The line between products and services is becoming thinner and thinner, whereas possession is no longer guarantee for the customer satisfaction. What is in that case?

Read more
4 Reasons to Migrate to the Subscription Business Model
8 February 2018

Do you remember the first time you sold your product or signed a contract for your service? I bet it felt good. Do you know what feels even better? Becoming a trusted provider of your services and products to your loyal customers. That lasting feeling is what the subscription-based business model holds in store for success-hungry entrepreneurs.

Read more
3 Must-knows about the Role of Payment Solutions
16 January 2018

How do payment solutions chosen by your company influence your business performance? It's important to decide on such that will not only meet your current requirements but also support your development strategy in the long term and smoothly scale your business.

Read more
Show more releases